Red flags to look for when spotting financial abuse
One of the main roles of a professional is to provide advice to their client. The duty to advise means that care should be taken to give competent and comprehensive advice to clients. Giving incorrect advice or failing to give advice at all could lead to a negligence claim if the failure leads to loss. The purpose of this blog is to briefly examine some of the issues which arise from this and set out some practical tips to identify when professional negligence claims may arise.
In the recent case of Solicitors Regulation Authority v David Hayhurst , the Solicitors Disciplinary Tribunal considered whether a solicitor is under an implied duty to carry out work that is reasonably incidental to the retainer. Mr Hayhurst was an experienced residential and commercial property solicitor, a specialism which included property developments, and the allegations made related to his role when acting for buyers in respect of four property development schemes. The two developers involved both went bust, and none of the four developments was completed.
In a judgment dated 16 June 2020, the Tribunal found that Mr Hayhurst had failed to adequately advise his clients about the high risks inherent in the property development schemes they were investing in. Although a solicitor is not obliged to travel outside their instructions and make investigations that are not expressly or impliedly requested by the client, the risks of the property development schemes were exactly the types of risks that a solicitor ought to advise their client on. The Solicitors Regulation Authority said the schemes were not inherently dubious but were inherently risky, with the investment being effectively worthless unless the development was completed. Even though the client care letter said that independent advice should be sought on the schemes, an inexperienced client will need (and will be entitled to expect) a solicitor to take a much broader view of the scope of the retainer and of their duties than with an experienced client.
This case shows that although a solicitor (and the same principle arguably applies to all professionals) is not under a general duty to warn clients about risks relating to matters falling outside the scope of the retainer, a potential professional negligence claim may arise where there is a failure to warn clients as to risks which are material to the retainer.
In the case of Halsall and others v Champion Consulting Ltd and others  EWHC 1079 (QB), the claimants (a firm of solicitors) had instructed the defendants (tax advisers) to advise them in relation to two tax mitigation schemes. The claimants alleged that the defendants had negligently induced them to enter into two schemes and that one of the schemes was susceptible to challenge by HMRC. In relation to the other scheme, the claimants alleged that the defendants had advised them that the scheme had a 75/80% prospect of success and failed to advise them that they could lose more than their initial investment.
The Judge found on the evidence that the defendants had advised the claimants to participate in the first scheme, had given them a 100% assurance that it would reduce their tax liability and had failed to advise them that there were circumstances in which HMRC might challenge aspects of the scheme. As to the second scheme, the Judge found that the claimants had made the representation as to the merits of success and had failed to advise in relation to additional liabilities which could arise out of the scheme.
Whilst the claim ultimately failed on limitation, this case addressed a core issue as to the nature of the advice given. The defendants argued that the advice provided fell within the “information” rather than “advice” category of claims. Those categories distinguish between the duty to provide information for the purpose of enabling someone else to decide on a course of action (the “information” category) and a duty to advise somebody what course of action they should take (the “advice” category). This distinction is crucial because professionals providing information will be liable only for the losses arising as a result of that information being wrong and professionals providing advice may be liable for all of the losses flowing from the transaction.
In this case, the Judge found that the advice provided by the defendants fell within the “advice” category. A crucial factor in determining this was looking at whether the adviser was responsible for “guiding” the whole decision making process, or whether they had simply “contributed a limited part of the material” on which the client relied in deciding whether to enter into the particular transaction. In this case, the adviser had retained full responsibility for assessing the merits and the tax adviser had “guided the whole decision making process”.
The above are just two examples where professional negligence claims may arise in “advice cases”. The cases were selected as they show: (i) advice may be required if it is incidental to the retainer and (ii) that there is a distinction between advice and information cases. These types of issues come up frequently in professional negligence cases and are often issues that many professionals fail to consider.
As to general tips for potential claimants considering whether they have a professional negligence claim against their adviser, the following are helpful considerations:
Considering whether a professional has given you incorrect advice or failed to give you advice at all is just one element of a professional negligence claim. If you believe that you have a potential negligence claim and would like an initial call to discuss this please get in touch with a member of our Professional Negligence team to discuss this further.
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